A lot of people are confused with Bitcoin and that included me few months ago. I am still learning right now, gathering all the knowledge I can get and learning from my mentors and experts in the fields.
If you haven’t read the part 1 of this article, I suggest you read that first before this. Click here.
Bitcoin for Beginners (Bitcoin Part 1)
These are the Frequently Asked questions about bitcoin and with simple answers
FAQ #1: What is the ultimate reason behind bitcoin?
The purpose behind bitcoin is to allow one person to directly send money to another.
This type of transaction is known as “peer-to-peer”.
In other words, bitcoin allows Juan to pay Maria directly, whether they’re a city away or across the globe. Juan and Maria don’t need to use a trusted third party like a bank or Paypal to process their transaction. As you can see, peer-to-peer transactions are highly efficient.
FAQ #2: What is a difference between Bitcoin and Dollar (paper money a.k.a. Fiat Currency)?
Bitcoin vs Dollar (paper money)
Did you know that the American Bureau of Engraving and Printing (BEP) prints billions of US dollars each year or any other country (on their own fiat currency) for that matter?
During 2016, the BEP delivered 7.6 billion notes to the Federal Reserve, that could be 1s, 5s, 10s, 20s, or even 100s totaling lots and lots of money.
While it’s true that 70%+ of the notes that the BEP delivers each year are used to replace worn out ones, that still means approximately 30%, or 2 billion notes, were introduced that year!
Because the government creates all of our money and when they produce more than just to replace the new ones, that increases the inflation thereby decreasing the buying power of your money.
If the government can create money, that means they can also control it. If any country were in a severe emergency, the government could prevent you from accessing your money. For example, in June 2015, the Greek government froze all banks. They limited everyone to withdrawing only $67/day from their own accounts!
And unlike US dollars, there are only 21 million bitcoin that will ever exist. When the 21 million bitcoins are reached, then production will stop. The unique advantage of that is that no bank or government creates or maintains bitcoin. In other words, banks and governments cannot control bitcoin and so cannot control its users.
FAQ #3: How are Bitcoin created? What is mining?
Bitcoins are created thru mining. There are 2 types of mining:
1. Mining (Proof of Work)
You can earn cryptocurrency without having to put down money for it.
Mining (Proof of work), is the computer process of recording and verifying information on the digital record known as the blockchain. There are many different ways to mine, but bitcoin mining also requires computers to solve a tough math problem.
Once a miner has verified 1 MB (megabyte) worth of bitcoin transactions, known as a “block,” that miner is eligible to be rewarded with a quantity of bitcoin.
To earn bitcoins, you need to meet two conditions. One is a matter of effort; one is a matter of luck.
1) You have to verify ~1MB worth of transactions. This is the easy part.
2) You have to be the first miner to arrive at the right answer to a numeric problem. This process is also known as proof of work.
How Much a Miner Earns
The rewards for bitcoin mining are halved every four years or so. When bitcoin was first mined in 2009, mining one block would earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this was halved again to the current level of 12.5 BTC. Today, 2020, the reward size will be halved again to 6.25 BTC.
What you need to mine?
Powerful computers, dozens of cooling fans and super high electricity bill.
2. Mining (Proof of Stake)
Every bitcoin transaction is recorded and verified on a public, digital record. There are over 7,000 people using their computers to simultaneously keep identical records of these transactions. The purpose of so many records is to reduce the risk of any single person or group manipulating and falsifying the data. In other words, public records provide transparency, security and ensures bitcoin transactions are permanent.
Since there is no middle man (aka banks, paypal, government, etc…) to get the transaction fees, this is where other miners can help.
Mining (Proof of Stake) is when miners are paid in transaction fees, that’s a small amount of bitcoin paid by people like you and I when we send bitcoin.
FAQ #4: What do you use bitcoin for, what are the benefits of it and why should you be interested?
Even though bitcoin was designed as electronic cash, its recent creation, lack of government control and unstable prices have caused businesses to hesitate in accepting it as money.
But, if there are those who hesitate, there are those who accepts Bitcoins as a legitimate payment such as: Bitpay, Coingate, supercar manufacturer McLaren, some real estates, and a lot more.
Personally, I have seen the power of Bitcoin. When I was in Singapore, the famous Marina Bay Sands restaurant accepts Bitcoin as payment.
At this rate, you can see how slowly, businesses are accepting Bitcoin as payment.
These are the benefits of owning bitcoin:
- A new way to transact outside of the government.
- A way to gain 100% control over your money, outside the sphere of influence of any organization, government, or bank.
- A new, very volatile investment.
FAQ #5: Where do I keep them?
Bitcoin can be kept in a secure storage service, known as a “wallet”.
All you need to know is that you are responsible for creating and remembering a strong password. You are responsible for protecting your email, phone, and computer security. And it’s your responsibility to create backups of information relating to your bitcoin.
What I’m trying to say is, you’re responsible for your own bitcoin.
If your bitcoin is stolen, there is nobody to call to get it back, since there’s no authority or regulator over bitcoin.
What’s Next?
To summarize, the government creates and controls money, known as fiat currency.
Bitcoin was created as an independent electronic cash, an alternative to fiat currency.
Bitcoin’s advantages are efficiency, permanency, security and transparency.
Bitcoin can be used to make big and small purchases, it is used widely as an investment vehicle and it provides an opportunity to escape from the financial collapse of some countries.
All of this comes at a cost. You must be aware of the security risks in storing and using bitcoin. You and you alone are responsible for your own bitcoin.
There are well over 1,000 cryptocurrencies available, and hundreds more on the horizon. If holding bitcoin isn’t your thing, you can diversify to other coins.
Next Article: Where do you buy Bitcoin in the Philippines
Learning with you,
Disclaimer: Nothing published in this article is to be construed as financial, taxation, investment, legal or other advice. Nothing in this article constitutes investment recommendations nor should any data or content in this article be relied upon for any investment activities. Investing in bitcoin or other alternatives is highly speculative and the market is largely unregulated. Anyone considering it should be prepared for 2 things that can happen: to lose their entire investment or wealthy in the process.
Sources: Dani Amselem (What is Bitcoin), Investopedia
Read more:
- Bitcoin for Beginners (Bitcoin Part 1)
- Where to buy Bitcoin in the Philippines (Bitcoin Part 3)
- If Traditional School Doesn’t Teach Money, How Do We Fill in the Gap?
- Are You With The Right People?
- Why Sometimes We Need Negative People, Doubters and Critics in our Lives
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